Why You Must Know About Owner’s Title Insurance.

Who Else May Have an Interest (Rights) in Your Property?

Although title generally refers to an ownership interest in a property, title specifically refers to all interests in a property by all parties. Interests can be:  

1. Rights to limited or specific use of your property by others due to easements they have been granted by you or by prior owners. Example – a utility easement gives a utility the right to access a defined part of your property to maintain its power/water lines. 
2. Rights held by lienholders and as defined in the liens and mortgages. 
3. Spousal rights – In some states, a spouse can have an interest in their spouse’s property without even being named on the deed. How much of an interest depends on many variables that your real estate attorney can advise you.

How Do I Get a Free & Clear Title?

The only way to find all the parties that have an interest in a property, and that all past owns have sold their interests, so the title/escrow attorney pays all of them before you take title to a property…is for the title/escrow company to perform a title search.  See blog on How To Do A Title Search.

But That’s no Guarantee!

A perfect title search cannot guarantee that all interests have been found. That’s right. In the U.S., the highest level of assurance that you own your property free & clear of all liens is to get an attorney’s opinion of such.  There is no guarantee in the U.S. that someone will step up and claim to have an interest in your property. Why?  Due to some defect in the human process of preparation, execution, and recording of land records. A title searcher cannot tell if a document has been forged or if it is missing a signor (due to error or fraud), or if a perfectly valid lien was misrecorded by the recorder’s office staff and cannot be found presently.  When these defects get discovered, and someone didn’t get paid what they should have gotten paid at some prior sale, then they could still have a valid lien on your property. This means you can’t sell it without paying them off.

What are Title Defects?

Defects are problems that have already occurred but have not yet been discovered or that could occur in the future and affect you.  Examples include but are not limited to:

1. Defective deeds; Improperly typed legal descriptions; Improperly indexed or recorded deeds, mortgages or liens
2. Ex-spouses who did not sign off on previous deeds in spousal rights states 
3. Undisclosed or missing heirs
4. Suppressed wills
5. False declaration or forgery of deeds, releases, and wills, etc.
6. Disability of grantors by reason of incompetency or impairment
7. Fraud, duress, or coercion in securing grantor’s or acknowledging officers’ signatures
8. Deeds delivered after death
9. Recorded instruments that were signed (executed) by persons acting under voided powers of attorney, voided by death or insanity of principals
10. Secret or common law marriages
11. Birth of children subsequent to date of parents’ will
12. Falsification of records

How to Protect Your Property Against Lawsuits Because of Title Defects?

Purchase owner’s title insurance when you buy your property.  That is the cheapest you can get it, at that time.  There is no deductible; it is a one-time premium, it covers you for as long as you have an ownership interest in the property, and it can cover you for the value of the home plus up to 50% appreciation – as your property grows in value, you have coverage.  So, if someone were to file a claim against your property, even up to the full value of your home, the title insurance company would defend that claim in court for you, at their expense, regardless of how long the case lasts.  If they lose, they would pay the claimant off, depending on coverage.    

I Could Forfeit my Whole Property?

Yes. The incidence rate of title claims being made and lawsuits started is higher than most folks think. Without owner’s title insurance, the results of a title claim filed against you could range from you being forced to pay off an old lien from a prior owner for a few thousand dollars up to you forfeiting your entire property and all the equity you have in it.  Carefully consider the cost and benefits, and do what most title/escrow company owners do when they purchase property – buy owner’s title insurance.  The higher the value of the property, the more you have at risk.

Lenders’ Title Insurance is NOT Owner’s Title Insurance

Lenders understand full well the risk and financial threat so they require you to buy lender’s title insurance on every property purchase to protect them.  It does protect the property owner in any way. Owner’s title insurance is completely optional, and title/escrow companies might fail to make you aware that it is available. Why? They don’t want to appear pushy, and most residential Realtors don’t even understand it – they think it’s insurance against doing a bad title search, but they are badly mistaken. It’s insurance against many things that have to do with the quality of a title search.

Six Scenarios Where Owner’s Title Insurance is a No-Brainer

1. When you’re paying all cash OR putting down a large down payment (all your equity is at risk.)
2. When the seller is an estate OR heirs of a recently deceased person. (Heirs and money often lead to disputes and lawsuits) 
3. When buying new construction, a remodel, or when an addition was done. (Materialmens’ liens)
4. When buying a recent foreclosure. (Liens may have been missed and still valid.)
5. Short-sale (property sold for less than the total of liens on it, liens may have been missed and still valid.)
6. When any kind of dispute is known about boundaries, shared driveways/fences/hedges, etc. (A title claim may be the likely result.)

Bottom Line – Is Owner’s Title Insurance a Scam?

No.  All title insurance companies are in business to make money, and the largest are all Fortune 500 companies, but the relative cost and potential harm without it makes owner’s title insurance a no-brainer to this author – and I stand to earn nothing from passing along this information. I sold my title/escrow company in 2018 after having closed over 8,000 real estate transactions. It depends on your risk tolerance and ability to afford the extra bucks for it. I recommend to not be pennywise and pound foolish. Get owner’s title insurance.